A new, and short, analysis by Douglas Holtz-Eakin and Cameron Smith looks at the effects of Obamacare on the deficit and US labor markets, focusing on the ways in which it will likely lead employers to drop health care coverage for lower and middle income workers and how it raises the effective marginal tax rate for those very same workers.

The key point on the total costs of Obamacare is that the CBO radically underestimated the number of people likely to take advantage of government insurance exchanges because they didn't account for the dynamic incentive effects of the subsidies for those who get insurance outside of their work and the penalities for employers who drop coverage.

The basic question is whether it's cheaper for employers (and better for workers) if they drop insurance coverage and pay the penalty, but offer the employee additional wages/salary that, combined with the subsidy, enables them to both have health insurance and be better compensated than they were with the status quo ex ante. In other words, is the sum of the pre-tax wage necessary to make the worker at least as well off and the $2000 penalty less than the cost of providing the employee with insurance? They argue that it may well be for workers at 250% of the poverty line or less who have a fairly typical health insurance plan through their employer. They conclude:

This suggests that there are about 43 million workers for whom it makes sense to drop insurance if the health plan costs the employer $11,941. CBO estimated that only 19 million residents would receive subsidies, at a cost of about $450 billion over the first 10 years. This analysis suggests that the number could easily be triple that (19 million plus an additional 38 million in 2014) – the gross price tag would be roughly $1.4 trillion.

If anyone was seriously naive enough to think Obamacare would be deficit-neutral or -reducing, this should be another wake-up call. Add to this the fact that virtually every major social program of the last 50 years has ended up costing multiple times its original estimates, and you can see the nature of "the profound challenge we face."

Their analysis of the effective marginal tax rate effects is also worth reading.